Levi’s Shares Fall After Latest Earnings Report
Key Takeaways
- Levi Strauss missed quarterly sales forecasts and cut its full-year guidance
- Sales declined in North America and Europe, though the company saw growth in China
- Consumers feeling strapped for cash and a hot, sweaty summer contributed to fewer denim purchases
Levi Strass & Co. (LEVI) missed quarterly revenue estimates and cut its annual guidance. Shares slumped early on Friday. What’s next for the iconic denim brand, and does this signal anything bigger about consumer spending? We’ll explore.
The state of Levi’s
The maker of its namesake jeans reported third quarter fiscal 2023 revenue of $1.51 billion, which missed analysts’ target of $1.54 billion.
Revenue declined 5% in North America and 2% in Europe, but results were mixed. Revenue rose 12% in Asia, driven primarily by China. Levi owns other brands, like Dockers and Beyond Yoga, which both saw sales gains.
The company named challenges in department stores and big box retailers as reasons for the weakness. Levi CFO Harmit Singh called attention to growth in direct-to-consumer and e-commerce operations. Singh also said that U.S. consumers earning between $50,000 and $100,000 are feeling pressure, which is impacting their spending.
CEO Chip Bergh also said that consumers are “being pressured” by the uncertain macroeconomic environment. He also mentioned an unusually warm summer as a reason for lower sales numbers.
Does Levi’s future look bright?
The company had mixed results this quarter, but it’s a brand that’s really proven its longevity so far. In fact, The Levi’s 501 style has been the most popular jean since 1873 when it was created. Few brands have successfully maintained Levi’s degree of timelessness.
The direct-to-consumer segment of Levi’s business grew 13% in Q3 compared to last year. With that growth came some stress on distribution centers that the company will have to work through in order to lean into that area of strength.
For starters, Levi’s opened a new distribution center to boost capacity and made other adjustments to its global supplier interactions.
Singh does have faith in brand affinity positively impacting the company’s bottom line. People “want to shop with brands that are offering relevant products…and brands that give good price value equation.” Singh said. “We took 6 of our 120 fits and we did reduce the prices.”
The bottom line
The macroeconomic climate is uncertain at the moment which is impacting consumer spending behavior. That is reason for caution and modest predictions for the year, but not panic.
As we’ve noted before, consumer spending has hit retailers like Macy’s as shoppers feel the squeeze of high borrowing costs. Levi’s stocks their clothing at those department stores, so it makes sense that they’ve felt the impact there.
It does seem like Levi Strauss leadership is intent on figuring out how to navigate more direct-to-consumer business, which will likely help the brand weather this small slump. Between that and growth in Asia, we’re not worried about the denim icon going anywhere just yet. Today, Levi’s stock is up 1.60%.
